Stocks sink on Fed worries, but Twitter surges

By STEVE ROTHWELL and KEN SWEET , Associated Press

Nov. 7, 20135:37 PM ET

NEW YORK (AP) — Twitter popped, but the rest of the market dropped.

Richard Drew

A technician checks the bell podium of the New York Stock Exchange, Thursday, Nov. 7, 2013. Twitter set a price of $26 per share for its initial public offering on Wednesday evening and will begin trading Thursday under the ticker symbol "TWTR" in the most highly anticipated IPO since its Silicon Valley rival's Facebook 2012 debut. (AP Photo/Richard Drew)

A technician checks the bell podium of the New York Stock Exchange, Thursday, Nov. 7, 2013. Twitter set a price of $26 per share for its initial public offering on Wednesday evening and will begin trading Thursday under the ticker symbol "TWTR" in the most highly anticipated IPO since its Silicon Valley rival's Facebook 2012 debut. (AP Photo/Richard Drew)

Specialist Glenn Carell calls out prices before Twitter begins trading during its IPO, on the floor of the New York Stock Exchange, Thursday, Nov. 7, 2013. If Twitter's bankers and executives were hoping for a surge on the day of the stock's public debut, they got it. The stock opened at $45.10 a share on its first day of trading, 73 percent above its initial offering price. (AP Photo/Richard Drew)

Specialist Glenn Carell, who will handle the Twitter IPO, works at his post on the floor of the New York Stock Exchange, Thursday, Nov. 7, 2013. Twitter set a price of $26 per share for its initial public offering on Wednesday evening and will begin trading Thursday under the ticker symbol "TWTR" in the most highly anticipated IPO since Facebook's 2012 debut. (AP Photo/Richard Drew)

Twitter CEO Dick Costolo, left, co-founder Biz Stone, center, and Amir Movafaghi, right, Twitter's Director of Treasury and Strategic Finance, applaud as shares begin trading in their IPO, on the floor of the New York Stock Exchange, Thursday, Nov. 7, 2013. If Twitter's bankers and executives were hoping for a surge on the day of the stock's public debut, they got it. The stock opened at $45.10 a share on its first day of trading, 73 percent above its initial offering price. (AP Photo/Richard Drew)

Twitter CEO Dick Costolo, left, and Mike Gupta, chief financial officer of Twitter, wait for shares to begin trading during the IPO, on the floor of the New York Stock Exchange, Thursday, Nov. 7, 2013. If Twitter's bankers and executives were hoping for a surge on the day of the stock's public debut, they got it. The stock opened at $45.10 a share on its first day of trading, 73 percent above its initial offering price. (AP Photo/Richard Drew)

Twitter wowed investors with a 73 percent surge on its first day of trading Thursday. The broader market, however, had its worst day since August as traders worried that the Federal Reserve could cut back on its economic stimulus.

The cause of that worry was a surprisingly strong report on U.S. economic growth in the third quarter. That led investors to believe the Fed could start pulling back as soon as next month, sooner than many anticipated.

After 33 record-high closes this year, an increasing number of investors believe the stock market has become frothy and is ready for a pullback. The first-day surge in Twitter, a company that has never made a profit, was the latest example.

"The market had rallied a heck of a lot and to justify further gains, we really need to see the economy improving or corporate earnings picking up," said Alec Young, global equity strategist with S&P Capital IQ.

The Standard & Poor's 500 index fell 23.34 points, 1.3 percent, to 1,747.15. Even after Thursday's drop, the index is still up 22.5 percent this year. The last time the benchmark index had a bigger gain for a whole year was in 2009.

The Dow Jones industrial average retreated from the record high it set the day before, giving up 152.90 points, or 1 percent, to close at 15,593.98.

What got traders concerned about a pullback by the Fed was a report from the government early in the day that the U.S. economy expanded at an annual rate of 2.8 percent in the third quarter, up from 2.5 percent in the previous quarter and more than economists anticipated.

The robust growth "certainly raises the possibility of the Fed pulling back in December," said Peter Cardillo, chief market economist at Rockwell Global Capital. "The Fed is going to test the water."

The Fed is buying $85 billion of bonds every month to hold down interest rates and encourage hiring and borrowing. The program has also helped drive the stock market rally by lowering bond yields, making them less appealing to investors.

Another key economic report comes out on Friday, the government's jobs survey for October. Economists forecast that U.S. employers added 122,000 jobs, down from 148,000 the month before, reflecting a 16-day partial shutdown of the federal government.

The jobs report "has people a little on edge" said Erik Davidson, deputy chief investment officer of Wells Fargo Private Bank. "We're expecting a modest number but it's really hard to say what the impact of the government shutdown will be."

In government bond trading, the yield on the 10-year Treasury note fell to 2.60 percent from 2.64 percent.